The organisation’s funds are not able to be utilised in meeting the mission of the organisation as they are taken by the person defrauding the organisation. Also, a subsidiary risk is that when an organisation discovers a person (be it a paid employee or a volunteer) commits fraud against the organisation, the organisation takes pity on the person and does not take appropriate action, to the detriment of the organisation.
Methods to Mitigate the Risk
The charitable nature of not-for-profit organisations can mean that they sometimes will take pity on a person who commits fraud (especially if that person has some form of problem such as a gambling addiction or serious illness). The concern is that when it is discovered that a person has committed a fraud, the person does not have their employment terminated, but is shifted to a different position within the organisation so that they will not be tempted to commit the same fraud again. It is interesting to note that the BDO Not-for-Profit Fraud Survey 2008 found that 20% of organisations did not terminate the employment of the person who committed the fraud.
It is not only the fraud that takes much needed funds away from the mission of an organisation. It must also be remembered that there are a number of additional costs to the organisation as a result of fraud. For example, the time it takes someone internally to investigate the fraud or the physical cost to bring external expertise into the organisation to conduct the investigation, time taken during the court process, an increase in insurance costs as a result of a claim being made and the potential loss of funding (eg. donations or grants). It is difficult to put a dollar value on these additional costs but they all take funds and time away from the mission of the organisation. However, a significant issue to consider is how the reputation of the organisation will be affected as a result of the fraud.
Whenever an organisation considers the issue of fraud and what actions should be taken as a result of fraud occurring, the mission of the organisation should be front of mind. By not terminating the employment of a person who has committed fraud (even if they show remorse and repay the money) there is an opportunity for the person to reoffend. It also sends the wrong message to other employees and volunteers, which may result in more fraud being committed. Once again this takes funds away from the mission of the organisation.
To protect its mission statement, an organisation should include the following statements in its Fraud Control Policy:
- The mission of the organisation is the reason for its existence, therefore fraud will not be tolerated as it takes much needed funds away from its mission;
- An employee who commits fraud will have their employment terminated;
- The organisation will take all actions possible (if it is economically viable to do so) to recover funds from the perpetrator of the fraud.